How to get a foot on the property ladder

Getting into the property market today can feel like a significant challenge. House prices are rising faster than most of us can save in many cities and suburbs. However, with the right guidance and a structured approach, buying a home is still an achievable goal.

Here, we explain the core steps for first-home buyers, from saving your deposit to securing finance.

How can I save for a deposit?

Before you get your heart set on your dream home, it’s critical to know what you can afford, and this means taking a detailed dive into your incomings and outgoings. Determining your current financial position (income, expenses, debts and savings) is the first step to knowing how much you can spend and, therefore, what deposit you’ll need.

It’s important to dig into the details here, as small changes can have a big impact over time. The key is commitment and consistency. Saving takes discipline, but the reward will come when you own your own home. Once you know where your money is going, you can determine how much you can save each month for a deposit.

It can be a good strategy to start a separate savings account for your deposit, looking for products that offer higher interest, no fees and even bonus interest for regular deposits. Every bit helps to grow your deposit and reach your goal sooner.

How much do I need to buy a home?

In the past, most lenders required a deposit of 20% of the purchase price. To make the maths easy – $200K on a $1M property. While this remains the benchmark if you want to avoid Lenders Mortgage Insurance (LMI), it’s no longer a hard and fast rule.

Some lenders will accept 5%–10% deposits from first home buyers, and government schemes like the First Home Guarantee can even help you avoid LMI.

That said, the larger your deposit, the better your position. It will be easier to secure a loan at a competitive rate. You’ll have lower monthly repayments and pay less interest over the life of the loan (money you can put toward your other life goals!).

What government assistance exists for first-home buyers?

There are several government grants and schemes to help first-home buyers get a foot on the ladder, such as:

• The First Home Guarantee: This enables eligible first-home buyers to purchase with just a 5% deposit and avoid paying LMI.
• The First Home Owner Grant (FHOG): A one-off payment (usually $10,000) for first-home buyers purchasing a newly built home or off-the-plan property. The rules vary by state or territory.
• Stamp Duty Concessions: Some states and territories offer reduced or waived stamp duty for first-home buyers, which can save you tens of thousands.

A mortgage broker can help you determine your eligibility and apply for any incentives to get you on your way sooner.

What will lenders look for in a mortgage application?

Lenders all have slightly different criteria, but essentially, they all want to be sure you can service the loan, and that’s in your best interests, too. Typically, lenders will look for evidence of genuine savings and the ability to repay the loan.

Secure employment helps, but it’s no longer the be-all and end-all. Casual and self-employed people can secure financing. It may require a little more documentation and looking at lenders that are more favourable to these circumstances.

Some lenders (but not all) will consider your rent payments as evidence that you can service the loan, so if you have an excellent rent track record, it can help.

Essentially, your mortgage application tells a story about your financial habits and ‘character’, i.e. do you repay your debts? A mortgage broker can help you collate your story and put your best foot forward.

Speaking to a mortgage broker early (as soon as you know you want to buy property) is always a good idea. We can assess your situation and advise on what you can do to get in the best possible position. We’ll also help you explore the right loan products and lenders for your situation.

What is LMI and should I avoid it?

LMI protects the bank or lender in case you default on your loan, and they can’t recover the full amount from the sale of your property.

If you’re borrowing more than 80% of the property’s value (i.e. if you have less than a 20% deposit), most lenders will require LMI. The cost can range from a few thousand dollars to over $20,000, depending on the loan size and how much you’re borrowing above the 80% threshold.

It’s important to note that LMI can usually be capitalised into the loan, meaning you don’t have to pay it upfront. But, of course, it means you’ll be paying interest on it over the life of the loan.

So, should you try to avoid LMI? Of course, you want to minimise costs, but if avoiding it keeps you off the property ladder, it may not be the best move. As property prices continue to rise, the longer you wait, the higher the deposit you need. It’s worth talking to a broker to ensure you are making the best moves.

When should I speak to a mortgage broker?

As soon as you start thinking about purchasing a property, it’s well worth speaking to a mortgage broker. We can guide you on how much you’ll need to save and how to put your best foot forward when it comes to securing a loan.

In a nutshell, an experienced mortgage broker will help you:

• Understand your borrowing power:  By examining your finances and circumstances, a broker will help you understand what you can comfortably afford.
• Compare and identify the best loan products:  Loan features and lending criteria can differ. A broker will help you explore the best options for you and can even discuss your scenario with a lender before you apply to maximise your chances of success.
• Explore government grants: A broker will help you understand whether you are eligible for assistance and apply for any relevant grants, incentives or schemes.
• Compile and lodge your application: Home loan applications can be detailed and time-consuming. A broker helps you prepare and lodge everything correctly.

In the current market, getting on the property ladder may feel like a dream, but it is still achievable for many Australians. Commit to saving, know your budget and get expert advice to guide you on your journey, and you can make it happen.

The right mortgage broker is an invaluable partner in your journey, helping you avoid common pitfalls, compare loans and put your best foot forward with lenders.

If you’re ready to take the first step towards owning your own home, start a conversation with a broker today.

General advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommend that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.